Lecture 3 - Lecture Lecture 3 Labor Demand: Profit...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
ecture 3 Lecture 3 Labor Demand: Profit Maximization
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
oadmap Roadmap arginal Product Marginal Product • Marginal Revenue Product • Profit Maximization • Complements vs. Substitutes • Example
Background image of page 2
he Markets in Which Firms Operate The Markets in Which Firms Operate
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Where does the labor demand curve come from? • Firm demand comes from individual firms maximizing profits given the price of inputs (wage, rice of capital) and product price of capital) and product prices. – Firms chose output, labor, and p, , capital. • Market demand comes from aggregating up all the individual firm demands. – Competitive firms are wage takers.
Background image of page 4
rofit Maximization Profit Maximization • Output = Y , P = price of output, C = costs • Revenue = YP , π = YP - C • Q: How much do you get from hiring an addition worker? – You get the additional output that the worker produces times the rice of the output (e g 10 scans times $1/scan = $10) price of the output (e.g. 10 scans times $1/scan $10). • Q: How much do you pay to hire another worker? – You pay the hourly wage. • So… if the worker brings in more money than it costs to mploy him you hire him If a worker costs more to employ him, you hire him. If a worker costs more to employ than money he brings in, you fire him.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
arginal Product of Labor: Marginal Product of Labor: The additional output associated with hiring one ore unit of labor more unit of labor. Why does Marginal Product of Labor (MPL) decline? Because the first salesman can handle a certain number of customers, and there may be more than he can handle alone. The second guy hired can help out and push more cars. Eventually, once there are more salesmen then customers the next hired guy does not increase total car sales. [you should probably get rid of one (or more) of them.]
Background image of page 6
Demand curve for a firm is the MRP L Wage Marginal Revenue Product of Labor W MRP L
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
In Math… (we use one hour as our unit of labor) Benefits: • Additional output from one more hour of labor = Y/ L – Marginal Product (of labor): MP L • Revenue from that additional output = P ( Y/ L) arginal Revenue Product (of labor): RP – Marginal Revenue Product (of labor): MRP L
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/09/2010 for the course ILRLE 2400 at Cornell University (Engineering School).

Page1 / 23

Lecture 3 - Lecture Lecture 3 Labor Demand: Profit...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online